Up Like a Rocket, Down Like a Feather

That’s a very common saying in the refining industry. When oil prices are rising, gasoline prices generally rise pretty quickly. I say generally because during the recent oil price run-up, gasoline didn’t keep pace because demand was softening. However, when oil prices fall, gasoline prices are usually slow to follow, hence the saying “Up like a rocket, down like a feather.”

While I have heard this saying a number of times, I wasn’t quite sure 1). Whether it was broadly true; or 2). If true, why it is true. A recent article at Environmental Capital – a blog on energy and the environment at the Wall Street Journal – shines some light on the topic:

Most studies conclude that yes—gasoline prices are quick to rise and slower to fall. That holds true seemingly everwhere—from California to D.C. suburbs to the Phillipines. (One glaring exception: the U.S.government’s Energy Information Administration, which concluded five years ago that prices rise and fall at the same rate.) The phenomenon even has a name: “rockets and feathers,” describing the speedy ascent and the leisurely decline. The bigger question is: who’s to blame? You are, in a way.

The theory of the day to explain sluggish declines at gas pumps points squarely at consumer behavior, as the folks at Knowledge Problem pointed out recently. When prices are rising, everybody drives all over town to shave a cent off each gallon. Once oil and gas prices start to fall, people get thrilled by $3.88 gas, and fill up at the corner station. Since there’s less comparison shopping, gas stations don’t have to change prices as often.

I suppose that makes sense. The remedy for this, they suggest, is to patronize more “mom-and-pop gas stations” in order to keep competition strong – and to shop around for the best deal regardless of whether prices are rising or falling.